Kuda Bank Raises $10M to Expand Mobile Banking in Africa

The African continent is experiencing substantial growth in mobile technology adoption, drawing significant attention to financial technology firms developing services for this expanding market.

Recently, Kuda, a Nigerian startup operating a popular mobile-first challenger bank for individuals and, in the near future, small businesses, announced a $10 million funding round – the largest seed investment ever secured by an African company. This funding reflects strong user demand and the company’s ambition, as stated by CEO Babs Ogundeyi, to become the preferred banking solution for Africans both on the continent and those in the diaspora.

“Our goal is to provide banking services to every African globally, regardless of location,” Ogundeyi explained in a recent discussion. The company is initially concentrating on its domestic market, having acquired approximately 300,000 customers – both individual consumers and small businesses – since its launch in September 2019, and currently processes over $500 million in transactions monthly.

This $10 million investment is spearheaded by Target Global, a prominent European venture capital firm, with participation from Entrée Capital and SBI Investment (formerly associated with SoftBank, but now independent), alongside several respected fintech founders and angel investors.

Notable investors include Raffael Johnen (founder of Auxmoney), Johan Lorenzen (founder of Holvi), Brandon Krieg and Ed Robinson (founders of Stash), and Oliver and Lish Jung (angel investors in Nubank, Revolut, and Chime).

Before this round, Kuda – co-founded by Ogundeyi and CTO Musty Mustapha – secured $1.6 million in a pre-seed round to initiate a beta version of its service. Ogundeyi indicated that preparations are already underway for a considerably larger Series A funding round, though the current valuation remains undisclosed.

Amidst global economic uncertainties brought on by a widespread health crisis, fintech companies in Africa have recently garnered considerable attention.

Notably, Paystack, a Nigerian payments startup, was acquired by Stripe for over $200 million, marking Stripe’s largest acquisition to date and the most significant acquisition exit for any Nigerian startup. This followed closely after Interswitch, another payments company, achieved a $1 billion valuation following an investment from Visa.

However, businesses centered around financial transactions – including the related e-commerce sector (such as Jumia, the first venture-backed startup from the region to become publicly traded) – have consistently been among the most closely monitored and widely embraced technology ventures in the region.

This trend is logical. Africa is a highly populated continent, yet remains relatively underdeveloped economically. In today’s world, digital access is closely linked to financial access. As mobile technology adoption increases, this population presents a significant opportunity, characterized by unmet demand and limited competition.

This has spurred numerous initiatives that utilize the growth in mobile phone usage to offer services enabling transactions beyond traditional cash-based methods. Innovative solutions like Mpesa, which leverages a mobile phone – even a basic model – as a substitute for a bank account, allowing payments and withdrawals via phone numbers and prepaid accounts, are examples of this trend.

Nigeria – currently Africa’s largest economy – has been a focal point for fintech innovation, and Kuda is actively capitalizing on this opportunity.

The company has focused on establishing Kuda’s presence from the ground up.

The emergence of challenger banks has been a noteworthy trend in consumer fintech, with companies like N26, Monzo, Starling, Chime, NuBank and Revolut gaining traction among younger demographics.

However, unlike many of these, Kuda does not rely on partnerships with established banks to manage and secure deposits. Instead, it focuses on delivering superior customer service and developing user-friendly experiences with added value in money management. Kuda has obtained a microfinance banking license from the Central Bank of Nigeria.

This allows Kuda to independently manage payments, transfers, and issue debit cards (in collaboration with Visa and Mastercard). Additionally, Ogundeyi stated that partnerships exist with established banks like Zenith Bank, Guaranteed Trust, and Access Bank to facilitate physical deposits and withdrawals when required.

“We have developed our core banking infrastructure internally, giving us complete control,” he explained. “This eliminates the need to depend on another financial institution, although we may choose to collaborate on specific products.” He added that the company intends to pursue full banking licenses in key regions, while potentially partnering in others where existing infrastructure makes it more practical.

“Obtaining a full license is crucial for monetization,” he added. “As a bank, we need the ability to provide loans, and in Nigeria, a full license is essential for lending and generating revenue.”

Kuda offers free account access and generates revenue through ancillary services. Users can directly top up their mobile phone accounts from the Kuda app (most accounts are prepaid), with Kuda acting as an intermediary and earning a commission.

Bill payments through the app also generate a commission for Kuda. Furthermore, like traditional banks, Kuda manages its funds and invests them in treasury bills, mutual funds, and, soon, other credit products. Fees are also collected from debit transactions, but these are not the primary revenue source, he said.

Kuda’s mobile-first interface mirrors the design of many new banking services built around apps, aiming to be more than a simple repository for funds.

The company utilizes machine learning to personalize the experience for each customer, Ogundeyi said, providing tailored budget suggestions and savings plans. “Our credit service will be based on individual spending habits, determining loan amounts and terms accordingly,” he said.

This focus on spending aligns with Kuda’s target demographic. Approximately 70% of Nigerians are under the age of 30, and they are “intelligent and entrepreneurial,” according to Ogundeyi.

While a simplified version of Kuda is available for feature phones – lacking the AI-powered money management features – the startup primarily targets individuals who are purchasing and using smartphones, have incomes and lifestyles that support regular deposits and spending, and are increasingly starting their own businesses. This overlap means that “focusing on small business owners doesn’t significantly deviate from our original business model of serving younger consumers,” he said.

Although some users are already utilizing Kuda for some of their small business banking needs, a dedicated small business product with enhanced features tailored for those users will be launched by the first quarter of 2021, he said.

Nigerian potential, African promise

Ogundeyi explained that despite the uncertainties created by the pandemic, Kuda’s relative success and the positive outlook for challenger banks facilitated the closing of this seed funding round, as well as securing additional investment in the near future.

“The rise of digital challenger banks, which offer customers a free, digital banking experience that surpasses traditional banking services, has achieved considerable success worldwide,” stated Dr. Ricardo Schäfer, Partner at Target Global. “Kuda stands as a prominent digital challenger bank in Africa and one of the fastest-growing fintech companies on the continent. We are thrilled to collaborate with Babs, Musty, and the entire Kuda team to build upon their impressive progress since their founding and assist them in reaching new heights.” He will be joining Kuda’s board as part of this investment.

“Kuda’s consistent dedication and rapid execution have enabled it to establish a remarkably innovative business model within the financial and banking sectors,” noted Avi Eyal, partner at Entrée Capital.

Securing funding for any startup originating from the continent is infrequent, and therefore, these achievements should be considered within the broader context of the difficulties African startups encounter when seeking capital in the global market. This market often demonstrates a preference for developed economies (and specific areas like Silicon Valley) and founders with established track records (which frequently favors white males).

“I believe progress is needed from all parties involved,” he commented regarding investors, founders, and the development of more robust African ecosystems. “Investors need to recognize the inherent value of the continent, and entrepreneurs must gain a better understanding of investor expectations to successfully secure funding.”

He suggested that increased participation from investors based in Africa could be beneficial.

“We currently lack a substantial number of African investors. It’s logical that individuals tend to invest in those they understand and with whom they share a connection. It’s not surprising that having a shared background (through work or education) can make it easier to obtain funding, as demonstrated by my own initial investment coming from a school friend.”

Indeed, Ogundeyi possesses direct knowledge of capital dynamics through his personal experiences. He was born in England to Nigerian parents, who later returned to Nigeria while he remained in the UK for education at British boarding schools and university. Ogundeyi continues to divide his time between Lagos and London (where he was located during our conversation last week), identifying primarily as Nigerian.

“Nigeria possesses the capacity to become a significant national economy if its resources are effectively utilized,” he stated. “The technology sector is making a substantial contribution to this potential, which is why there is considerable interest and why we are enthusiastic about operating within the country.”